FX Friday – Global Currency Review & Forecast – 2-26-16

Markets Trading on News and Chatter

The markets traded on news and chatter this week. The price of oil was influenced by talk of a potential oil production freeze agreement among oil producing nations. The price of oil went up when it appeared the agreement might happen and on speculation of how long it might remain in effect. The price of oil fell when it seemed that no oil production freeze deal was imminent. The dollar rose and fell on Fed President chatter that interest rates were still on the table (Fed President Lacker) and talk that they shouldn’t be (Fed President Bullard).

Gold also rose and fell on news and chatter but was generally a beneficiary of the uncertainty in the markets and after falling sharply earlier in the week, rallied mid week and held its gains.

Week Ended February 19, 2016

The U.S. Dollar Index* closed the week ended February 19, 2016, at 96.63 up from 95.96 on February 12, 2016.

Oil closed down about 3% on Friday the 19th and finished the week at $29.89 up slightly from $28.99 the week ended February 12.

Gold finished at $1226 an ounce on the week down from $1238.50 and silver $15.31 down from $15.72.

Week Ended February 26, 2016

On Monday, February 22, the US Dollar Index opened the week strong, up to 97.54, gold fell $20 to nearly $1200 an ounce and silver dipped below $15 an ounce. Oil was up to 31.50 on predictions that U.S. shale oil output would decline.

The British pound sunk on the City of London Mayor’s comments that he would advocate Britain leaving the Eurozone. The Euro also fell on the news of increased odds of a Brexit.

On Tuesday the Dollar Index opened lower, oil was stable then fell on doubt that Iran would support an oil production freeze. Gold and silver rebounded from their losses that began on Sunday evening. Gold opened higher, recovering from its Sunday night decline and rose on “safe haven demand.”

Oil fell sharply as did stocks early in the day and gold soared to $1252 an ounce. Later in the day, oil rose and stocks bounced off their lows to finish higher on the day. Gold gave up nearly $25 of its $28 price gain. Silver which had been up over $.10 an ounce earlier in the day closed down $.05. The Dollar Index rose to a high of 97.90 and fell to 97.27 but ended even at 97.45.

January new home sales came in at 494,000 vs below expectations of 523,000.

On Thursday, gold opened higher after rising in Wednesday evening trading, silver lower, the Dollar Index flat at 97.47 and oil lower at 31.71. The Dollar Index rose after a better than expected U.S. Durable Goods report was released in the morning.

Initial jobless claims were 272,000 for the prior week slightly higher than expectations of 270,000.

Fed President Bullard was at it again on Thursday, this time on CNBC repeating his belief that the Fed should not raise rates.

Fed Presidents William and Lockart also spoke but didn’t move markets in any meaningful way as Willlams saw little risk of a recession and Lockart said rising rates would be a risk for U.S. banks and repeated the line that further rate hikes would be “data dependent”.

On Friday, the US Dollar Index opened flat at 97.47, Gold up slightly to $1235 an ounce, silver down at $15.05 and oil up about 2% to $32.60 a barrel.

On Friday morning, the second estimate of U.S. 4th quarter 2015 GDP was released. Expectations were for an increase of 0.4% up from the first revision of 0.4%. The second estimate showed a 1.0% gain. Immediately after the GDP announcement, the Dollar Index rose .28% to 97.70, oil tacked on $.34 to $32.94 a barrel, gold fell $6 to $1229 an ounce and silver remained unchanged.

On Deck Next Week

Next week’s February non farm payroll number could provde some clarity on the potential for further Fed rate hikes. A strong reading (175,000+ new jobs) could create trader sentiment in favor of a rate hike at one of the next two Fed meetings in either March or June. Anything lower than 175,000 jobs created may remove a rate hike from traders’ minds, at least for the upcoming March Fed meeting.